You are in charge of a four-facility series system which brings your product to market in Atlanta. The first is a manufacturing facility in Jiang Su, China with a setup cost of $5,000 per product order and $0.20 per unit per month in holding cost. Next in line is a warehouse in the Port of Hong Kong, with fixed order cost of $1,500 and holding cost of $0.60 per unit per month. Product moves from Hong Kong to a receiving warehouse in the Port of Savannah, which has a fixed order cost of $3,000 and holding cost rate of $0.80 per unit per month. The items are then transferred to a local warehouse in Atlanta, which serves a retail store that isn’t owned by your company. The warehouse has a fixed cost of $1,000 per order and holding cost rate of $1 per unit per month.
a) Based on each facility’s fixed and holding costs, should any echelons order together? Which facility (if any) should never hold inventory?
b) If the external demand is 5,000 units per month, what is the decoupled order cycle at each echelon? (These cycles should be in non-increasing order.)
c) Round the decoupled order cycles to their respective multiplicatively nearest power of 2, so the solution is nested. What are the operating costs of this policy?
d) Suppose your company acquires the retailer, and assume its holding cost is $1.10 per unit per month. What is the largest fixed cost that maintains the current coupling? Conversely, what is the smallest fixed cost that forces all facilities to order simultaneously?